Our federal social programs--Social Security, Medicare and Medicaid--are pay-as-you-go: all the expenditures this year are paid by taxes collected this year. As I have detailed many times, the so-called "Trust Funds" are fictions; when Social Security runs a deficit, the difference between receipts and expenses are filled by selling Treasury bonds in the open market--the exact same mechanism ther government uses to fund any other deficit.

The demographics of the nation have changed in the past two generations. The Baby Boom is retiring en masse, expanding the number of beneficiaries of these programs, while the number of full-time workers to retirees is down from 10-to-1 in the good old days to 2-to-1: there are 60 million beneficiaries of Social Security and Medicare and about 120 million full-time workers in the U.S.

Meanwhile, medical expenses per person are soaring. Profiteering by healthcare cartels, new and ever-more costly treatments, the rise of chronic lifestyle illnesses--there are many drivers of this trend. There is absolutely no evidence to support the fantasy that this trend will magically reverse.

Costs are skyrocketing and the number of retirees is ballooning, but wages are going nowhere. Do you see the problem? All pay-as-you-go programs are based on the assumption that the number of workers and the wages they earn will both rise at a rate that is above the underlying rate of inflation and equal to the rate of increase in pay-as-you-go programs.

If 95% of the households are earning less money when adjusted for inflation, and their wealth has also declined or stagnated, then how can we pay for programs which expand by 6% or more every year?

The short answer is you can't.

The budgets of state and local governments also expand every year as citizens demand more services, infrastructure requires costly maintenance and upgrades, and the overall costs of providing government services rises (soaring healthcare premiums are a major driver of higher government expenses). How can households pay higher property and sales taxes if their incomes are going nowhere?

Stagnant wages = stagnant income tax revenues.

Then there's the consumer economy that depends on ever-higher consumer spending. If wages are stagnant, how can households spend more money? The conventional answer is: we'll blow asset bubbles in stocks, bonds and housing, and households can spend this newfound wealth.

Nice theory, but only the top slice of American households own enough of these assets to matter. Feast your eyes on these two charts of skyrocketing income and wealth inequality. This chart shows that the majority of income growth is now concentrated in the top 1/0th of 1%, and most of what's left has gone to the top 5%. This is the only possible outcome of financialization and central-bank inflated asset bubbles.

Here's another look at the same dynamic, but excluding capital gains, which flow to those who own most of the assets, i.e. the top 1%: the bottom 90% lost 10% in the decade 2002-2012, the top 5% gained 6% and the very top of the wealth-power pyramid, the top 1/100th of the 1%, gained 76%.

The conclusion is sobering: wages/salaries are no longer an adequate means to distribute income or paid work. Our system is broken at the deepest levels--not just economically broken, but socially broken as well. Clinging to this broken model and filling the widening gap between the super-wealthy and everyone else with more debt will doom the system.

Wednesday, August 30, 2017

The problem with stagnant wages is our socio-economic system requires ever-higher incomes to function.

One of the enduring mysteries for conventional economists is why wages aren't rising for the bottom 95% even as unemployment is low and hiring remains robust. According to classical economics, the limited supply of available workers combined with strong demand for workers should push wages higher.

Why have wages for the bottom 95% lost ground in an expanding economy?We can start our search for answers by looking at a chart of wages going back 44 years to the early 1970s. Note that the top 5% began pulling away in the 1980s, when financialization and globalization took off, and accelerated in the 1990s tech boom and the early 2000s housing bubble. The bottom 95% benefited from these booms, but at a much more modest level: wages for the bottom 95% almost returned to 0% gain as opposed to actual declines.

But after the wheels fell off the bubble in 2008/09, the "recovery" since then has seen wages for the top 5% soar and the wages for the bottom 95% crater. (This chart is for males; the next chart reflects family income.)

Here's family income going back to the postwar boom of the late 1940s and 1950s. Note the structural change in the early 1970s and the stagnation in all income levels since 2000:

The forces that gathered steam in the 1970s, 80s and 90s that pressured wages are well-known: financialization, which benefited the top echelons at the expense of the increasingly burdened debt-serfs; globalization, which pitted American workers against an ever-expanding global work force of low-paid employees, and automation/software, which expanded from the factory floor into service sectors.

Those workers with the skills required by financialization, globalization and automation--the technocrat and managerial classes--benefited mightily, while those who could not add enough value at the top of the chain saw their wages stagnate.

But these structural forces don't explain all the stagnation of wages for the bottom 95%. There are three other equally powerful structural forces at work:

1. Zero interest rates and abundant liquidity have kept zombie firms alive, bloating supply. In sector after sector, there is an oversupply of everything: too much retail space, too many fast-food outlets, etc. Marginal enterprises have been able to continue as zombies, skimming just enough income to borrow more money and roll over existing debt.

In an environment of historically normalized rates, i.e. 6% mortgages and higher rates for other debt, these zombie firms would be shuttered and the oversupply would diminish, enabling the survivors to regain pricing power and thus the wherewithal to pay higher wages.

2. Revenue that could have gone to wages has been siphoned off by soaring labor overhead: healthcare premiums, higher workers compensation taxes, etc. When an employer has to pay $500 more per month for an employee's healthcare insurance premium, that's $500 that could have gone into a fatter paycheck; instead, it disappeared into the insatiable maw of U.S. healthcare.

3. Many if not most employers can't afford to pay higher wages regardless of the labor market. Most employers are facing ever-higher costs while their pricing power (ability to raise prices) is effectively zero due to the oversupply of virtually everything.

The only sectors with the ability to raise prices at will are cartels that pass their profiteering onto the general populace with the protection of the federal government: higher education, Big Pharma, etc.

Faced with zero pricing power and higher costs, employers either add hours to existing employees' schedules or hire no-benefit part-time employees. This is the reality for most small businesses.

The problem with stagnant wages is our socio-economic system requires ever-higher incomes to function. Stagnant wages kill pay-as-you-go social programs such as Medicare, local governments dependent on income taxes, and of course the consumer sectors that rely on the spending of the bottom 95%.

As I have noted many times, filling the gap between stagnant wages and higher expenses with more debt works for a while, but it isn't a permanent solution, as eventually the costs of servicing the higher debt eats the borrower alive--and when he defaults, the bad debt eats the lender alive, too.

Tuesday, August 29, 2017

That's the problem with fragility: everything looks fine on the surface until a crisis applies pressure. Then the whole rickety contraption collapses in a heap..

Life is inherently uncertain, but systems that were once considered certainties have increasingly become uncertain. Social Security is one example; recent polls reflect widespread doubts among Millennials and Gen-Xers that there will be any Social Security benefits left for them by the time they reach retirement age.

This doubt is fact-based; as the number of retirees swells, as Medicare costs soar ever higher and the number of full-time jobs paying into Social Security/ Medicare stagnates, these pay-as-you-go programs break down; Social Security is already paying out billions more than it collects from employers and employees.

Uncertainty is one thing, fragility is another. The socio-economic systems we rely on are also becoming increasingly fragile and prone to failure, for an entirely different set of reasons than those driving uncertainty.

Changing fundamentals drive uncertainty. The nation's demographics and stagnant wages for the bottom 95% are extremely unfavorable for pay-as-you-go programs like Social Security and Medicare; their future is uncertain because the inputs and outputs are changing.

Fragility is a function of systems being thinned by cronyism, self-serving insiders, fraud, lack of transparency, lack of competition, monopolies, profiteering and a decline of quality. Systems that become too costly due to the above dynamics are hollowed out as everyone seeks some way to reduce the costs. Redundancies are stripped out, staff is slashed to the bone, senior managers with the most experience are pushed out to lower payroll costs, quality control is whacked, and inferior inputs are presented as equal to the higher quality inputs that they replace.

When these weakened systems are under pressure or face a crisis, they crumble. Shoddy materials fail, inexperienced managers make hasty, ill-informed decisions, the barebones staff is overwhelmed, equipment that wasn't properly maintained to save money breaks down, and so on.

We're assured by financial authorities and the media that our banking system is now monstrously resilient and robust, and it is impervious to financial crisis. You're kidding, right? So when all the subprime auto loans go bust, and all the overleveraged commercial real estate loans go bust, and all the developing-world debt in U.S. dollars goes into default, and all the consumer debt issued to marginal borrowers goes bust, the hundreds of billions in losses are all going to be absorbed, no problem.

This is fragility writ large. You can bet the entire financial sector is making the same faulty, fragility-creating assumptions as a means of maximizing profits: only one auto loan in a hundred will go into default, near-zero commercial real estate loans will blow up, every dollar-denominated loan in the developing world will be paid in full, blah blah blah.

In other words, if we assume FantasyLand perfection of marginal borrowers--that once a global recession guts their opportunities to refinance and the income needed to service their loans, they will still magically make all payments in full and on time--the financial system is resilient.

Beneath the reassurances, the system is increasingly fragile because all the resilience has been stripped out of it to maximize profits in the current quarter. And as for the financial authorities--who believes the financial sector is serving the interests of the bottom 99.5%? Based on what evidence? Who believes the mainstream media is reporting the deteriorating fundamentals and the increasing fragility of our society's core systems?

All we need is a few overlapping crises to reveal the structural fragility and lack of trust/certainty in our core systems. Profiteering, cronyism, self-serving insiders, a decline in quality, gaming the system, fraud, opacity, propaganda, and the erosion of competence all seem like good clean fun when the weather is calm and the sun in shining. But the true nature of our systemic failure will only be revealed when multiple storms arise and the system is pushed to the limit.

That's the problem with fragility: everything looks fine on the surface until a crisis applies pressure. Then the whole rickety contraption collapses in a heap.

Monday, August 28, 2017

You don't need an army to achieve World Domination; all you need is enough cheap credit to buy up everything that generates the highest value and/or income.

World Domination--it has a nice ring, doesn't it? Here's how to achieve it in 5 steps:

1. Turn everything into a commodity that can be traded on the global market:land, leases on land, options to purchase land, houses, buildings, rooms in slums, labor, tools, robots, water, water rights, mineral rights, rights to air routes, ships, aircraft, political power, shares in corporations, government bonds, municipal bonds, corporate bonds, student loans that have been bundled into debt-based instruments, the income from city parking meters, electricity, software, advertising, marketing, media, social media, food, energy, insurance, gold, metals, credit, interest-rate swaps and last but not least, financial instruments that control and/or pyramid all the real-world goods and assets that have been commoditized (i.e. almost everything).

Why is this the essential first step in World Domination? Once something has been commoditized, it can be bought and sold in the global marketplace in fiat currencies--currencies that are not backed by any real-world asset and that can be created out of thin air by central and private banks.

You see the dynamic, right? Create credit-currency out of thin air, and then use this "free money" to buy up the real world. Quite a trick, isn't it? Get a means of exchange for essentially nothing (i.e. money at near-zero interest rates) and then trade this for assets that produce goods and services everyone else needs or wants.

Now we understand steps 2 and 3:

2. Enable private banks to create money out of thin air via fractional reserve banking. You know the drill: banks can issue $15 in new loans for every $1 in cash they hold in reserve. (Depending on the current regulations, it might as little as $10 or as much as $35 that can be created and lent out for every $1 held in cash reserve.)

In the current zero-interest rate environment, this new money can be borrowed for near-zero carrying costs by corporations and financiers.

3. Establish a central bank with essentially unlimited ability to bring money into existence and use it to backstop the private banking sector. If the private banks get in trouble, no problem, the central bank is there to bail them out with unlimited lines of credit and an unlimited ability to create new money.

4. Undermine/destroy local economies' ability to organize production and consumption without using credit and fiat currencies (i.e. money controlled and issued by central and private banks). Trading goods on barter? Get rid of that. Using social ties rather than cash or bank credit to organize production and consumption? Eliminate that capability. Locally issued currencies? That's against the law. Using cash? bad, very bad--everyone must use banks and bank credit instead.

Once these four steps are in place, the 5th step is easy:

5. Buy up all the productive assets and income streams of the world with nearly free credit-money. No saver can compete with corporations and financiers with access to billions of dollars in nearly-free credit-money.

It doesn't matter if you earn $1,000 or $100,000 a year--you will be outbid.

Once everything can be bought on the global marketplace, and you have nearly unlimited access to super-cheap credit, you don't need an army to achieve World Domination; all you need is enough cheap credit to buy up everything that generates the highest value and/or income.

Now you understand why I say: if we don't change the way we create and distribute money, we've changed nothing.

Sunday, August 27, 2017

It isn't just coincidental that ideology shares so many dynamics with addiction. Though ideology is a faith-belief dynamic rather than a chemical process, both require constant reinforcement/renewal and both demand a painful withdrawal procedure of those who decide to free themselves of the monkey on their back.

The individual addicted to an ideology needs a constant drip of confirmation that the ideological belief is both correct and ethically superior to competing belief systems. The ideology-addict gets a much-needed hit of confirmation by reading, watching or listening to other believers' justifications and defenses of the ideology.

Ideology fills two basic human needs: certainty and purpose. a constant state of uncertainty places a corrosive burden on the mind, emotions and spirit; the solution is a decision or resolution that resolves the uncertainy.

Humans need purpose to guide their life; aimlessness is debilitating and unnatural.

Addiction provides purpose, as the life of the addict is guided by the need to satisfy the addiction.

Ideology also provides purpose: the believer is called upon to defend and evangelize the ideology as an abstraction, and support its manifestations in the real world.

Addiction is an all-or-nothing state of being. If an individual can abandon the addiction at will and feel no deprivation, it isn't an addiction; if sporadic half-measures suffice, it isn't an addiction.

Ideology is also an all-or-nothing state of being. One doesn't believe in capitalism or socialism, for example, in half-measure or occasionally when the whim strikes; one is convinced of the rightness of one's ideology as a permanent state of certainty.

There is a sense of belonging and betrayal implicit in ideological beliefs that mirrors addiction. The sex addict, for example, feels only fellow sex addicts can possibly understand the compulsion and satisfaction of that particular monkey on one's back.

In the state of ideological certainty/ addiction, only fellow believers can possibly grasp the perfection and rightness of the ideology. Thus this certainty is not just a state of being; it is also a state of belonging, hence the similarity of belonging to a cult and addiction.

To cease believing is heresy and an abject betrayal of the brethen/sisterhood.Hell hath no fury like a membership scorned or abandoned.

True believers feel a certain kinship not just with fellow adherents but with adherents of opposing camps. Ardent socialists dismiss the ideology of true believers in capitalism (and vice versa), but understand the ardency of the misled: their belief is misplaced, but not their ardency.

There is always hope that the misled might see the light and switch allegiance to the "right" ideology.

The unbeliever is however suspect. How could someone believe in only some aspects of socialism and discern falsehoods in the rest? (The same being said of those who only see the value in narrow strips of capitalism.)

Ideological purity mirrors the dangers of addiction. To the true believer of free-market capitalism (i.e. the abstraction, not the real-world version), public ownership of waterworks (for example) is anathema, even if example after example proves the disastrous consequences of the sale of public water utilities to distant tax-evasion based corporations.

Just as the addict has no interest in other forms of addiction (the sex addict has little interest in heroin, etc.), those addicted to an ideology have little interest in anything that muddies the water of their chosen certainty: if private or private ownership is anathema, it is always and forever anathema.

Why is this so? Certainty quickly erodes when complexity is introduced. What do we make of worker-owned enterprises? Since they are not publicly owned, they're not socialism; nor are they cleanly capitalistic, since the capital of ownership cannot be traded on the open market--yet the worker-owners must still operate the enterprise at a profit lest it fail.

This is why it's difficult for true believers to deal with the ambiguity of complexity. If we say (as a rough estimate) that Marx was 50% right--profoundly right about the half he nailed (the alienation of the worker from the product of his/her labor, for example) and profoundly wrong about the half he botched (the state fading away, etc.)--this doesn't sit well with believers, just as capitalism's failures don't sit well with its true believers.

This is why ideological purity is a dangerous addiction: the world is an inherently messy, dynamic environment and the ease of all-or-nothing certainty leads to catastrophic failure when all-or-nothing purity is imposed on a world that is complex rather than simplistic.

All-or-nothing demands of ideological purity inevitably lead to totalitarianism.Unbelievers and dissenters introduce a disturbing lack of certainty, and pose the risk of organizing life around other beliefs. The solution is to forcibly convert them or force them to live in a world in which ideological conformity is imposed on all.

As history amply proves, unfortunately, all totalitarian systems result in destabilizing inequalities, as some are inevitably more equal than others. Just as opioid deaths spiral higher as the monkeys of addiction proliferate, the death of complexity and uncertainty lead to death of culture, opportunity and eventually of social stability and the common good.

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.

Our Privacy Policy:

Correspondents' email is strictly confidential. This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Adsense and Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative)If you have other privacy concerns relating to advertisements, please contact advertisers directly. Websites and blog links on the site's blog roll are posted at my discretion.

Our Commission Policy:

Though I earn a small commission on Amazon.com books and gift certificates purchased via links on my site, I receive no fees or compensation for any other non-advertising links or content posted on my site.

Weekly Musings Reports

"What makes you a channel worth paying for? It's actually pretty simple - you possess a clarity of thought that most of us can only dream of, and a perspective that allows you to focus on the truth with laser-like precision." Jim S.

The "unsubscribe" link is for when you find the usual drivel here insufferable.

Contribute via PayPal

Why I gratefully accept donations and why you might want to donate:

A 95-minute movie with 10 minutes of ads and a small popcorn costs $25.
If you enjoyed this site for at least 2 hours this year, and you donate $25, you already received more entertainment than you did from the movie. The other 100+ hours of enjoyment you receive here is FREE.

Subscribers and donors of $50 or more this year will receive exclusive weekly Musings Reports.

You have the immense moral satisfaction of aiding a poor dumb writer who seeks to inform, entertain and amuse you.

Contribute via Dwolla

Dwolla members can now subscribe to the weekly Musings Reports with a one-time
$50 payment; please email me,
as Dwolla does not provide me with your email: